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Chelsea Therapeutics International Inc (NASDAQ:CHTP)

Q2 2009 Earnings Call

August 05, 2009 11:00 AM ET

Executives

Kathryn McNeil - Investor/Media Relations

Simon Pedder, Ph.D. - President and Chief Executive Officer

J. Nick Riehle, MBA - Vice President, Administration and Chief Financial Officer

Analysts

Juan Sanchez - Ladenburg Thalmann & Co

Liana Moussatos - Wedbush Morgan Securities Inc.

Brian Abrahams - Oppenheimer & Company

Howard Liang - Leerink Swann & Co

Andrew Vaino - Roth Capital Partners

Operator

Good day and welcome to the Chelsea Therapeutics Second Quarter 2009 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Ms. Kathryn McNeil. Please go ahead.

Kathryn McNeil

Thank you. Good morning and welcome to our call this morning.

Joining me from Chelsea Therapeutics is Dr. Simon Pedder, President and Chief Executive Officer; Nick Riehle, Chief Financial Officer; and Dr. Art Hewitt, our Vice President of Drug Development.

Before we begin, I'd like to take a moment to remind everyone that during the conference call members of Chelsea's management team will make certain forward-looking statements regarding the company's future plans and anticipated outcome, that involve risks and uncertainties which may cause the actual results or outcomes to be materially different from those anticipated and discussed on this conference call.

Forward-looking statements are made pursuant to the Safe Harbor Provisions of the Federal Securities Laws. Information contained in these statements is based on our current expectation, subject to change and actual results may differ materially from these forward-looking statements.

Chelsea does not undertake to update such forward-looking statements to reflect any changes, events or circumstances that may materially affect the company's expectations after the date of this conference call. Factors that could affect actual events or results to differ include our need to raise additional operating capital in future, our history of losses, risks and cost of drug development, risks of regulatory approvals, our reliance on our lead drug candidates, reliance on collaborations and licenses, intellectual property risk, competition, market acceptance for our products, if any are approved for marketing, and our reliance on key personnel, including specifically Dr. Pedder.

These and additional risks are discussed in Chelsea's filings with the SEC. These documents are available on Chelsea's website and we encourage you to review them carefully.

With all that said, I'd now like to turn the call over to Dr. Simon Pedder. Go ahead Simon.

Simon Pedder, Ph.D.

Thanks Kate. Good morning everyone and thank you for participating in this morning's call. So far 2009 has been a pretty exciting year at Chelsea.

In just the first half of the year, we reported favorable results from three trials and completed enrollment in the first of two pivotal studies we drafted over. That's a significant amount of work and a tremendous accomplishment for an organization of any size. But for a company our size it's truly speaks to the talent and the capabilities of the Chelsea development team.

We've been very pleased that the data from each of these trials have met with a great deal of interest from the medical community, from the industry and also from investors. As exciting has been to reach these milestones and be in a position to report such an impressive collection of data I have to say I think we all look forward to the second half of this year with even greater excitement.

In a moment, I will get into some greater detail about our progress and operational activities for the second quarter, and discuss the key milestones that remain for the year ahead.

But before I do so, I will turn the call over to Nick to briefly run through the financials for the quarter. Nick?

J. Nick Riehle, MBA

Thanks Simon. We are pleased to report that the excitement and progress Simon alluded to on our clinical programs was in many ways matched by development that collectively served to substantially strengthen Chelsea's balance sheet and leave us well capitalized to execute against our development and commercialization goals.

First and foremost, as we reported on our last conference call, Chelsea has regained full liquidity on it holdings and auction rate securities. This resolution has progressed in stages. Beginning late in the fourth quarter of 2008, our settlements agreement with UBS, which was amended in the first quarter of '09, provided full liquidity at 11.6 million in auction rate securities through a no net cost line of credit.

Under this agreement, UBS will repurchase our auction rate securities at per value by the end of June 2010, with proceeds used to repay the loan. With this repurchase less than a year away, these securities are now shown as short-term investments on our balance sheet and fully offset the line of credit.

As we previously reported, in May we reached an agreement related to the remainder of our auction rate securities held with Banc of America, which calls for the immediate repurchase of 11.6 million in auction holdings at 100% par value. This settlement also included an additional refund of $400,000 for losses associated with the January sale of auction rate securities on the secondary market.

The repurchase was completed in June, and resulted in a gain of approximately 4.1 million related to the recovery of previously recorded impairments, which favorably impact our net loss for the quarter.

Accordingly, Chelsea's net loss for the second quarter of 2009 was 5.3 million or $0.18 per share, versus a net loss of 7.3 million or $0.24 per share for the same period in 2008. Excluding the recapture of auction rate securities impairment, our loss for Q2 '09 will total 9.3 million. Our year-to-date net loss of 12.7 million or $0.42 per share also compares favorably to last year's first half loss of 16 million or $0.15 per share. However, excluding the 2008 impairment charges and the 2009 credit, our current year loss is 17.1 million when compared to the first half loss of 14.4 million in 2008.

Research and development expenses for the second quarter of 2009 were 8.1 million compared to 6.4 million for the same period at 2008. For the six months ended June 30th, research and development expenses were 14.6 million versus 12.9 million for the comparable prior year period.

Our R&D expenses increased over the last year primarily as a result of increased clinical activity including the Droxidopa pivotal registration program in neurogenic orthostatic hypotension, the Phase II trials of Droxidopa in intradialytic hypotension and fibromyalgia, our Phase II evaluation of CH-1504 and our Phase I trial of CH-4051. So it's clearly been a busy year for the first two quarters.

Selling, general and administrative expenses of $1.3 million for the three months ended June 30, 2009 were in line with $1.4 million for the same period in 2008. Similarly, selling, general and administrative expenses for the six months were flat year-over-year at 2.7 million. Chelsea ended the quarter with $24.3 million in cash and cash equivalents after using $15.9 million to fund operations through the first six months of the year. This reflects a net increase of $2.8 million from December 31st, 2008 with additional liquidity obtained through the settlement of our auction rate holdings more than offsetting the operating burn.

Of course, the 24.3 million at the end of Q2 excludes the proceeds from our recently completed registered direct offering, which after deducting the related expenses resulted in gross proceeds to the company of 12.4 million. This inclusion of capital is critical because it allows us to accelerate important pre-launch activities for Droxidopa that Simon will address in a moment and it meaningfully extends our runway.

Our June 30th cash balance plus the proceeds from the financing totaled just under 37 million. As we move forward over the next few quarters, our clinical expenses are expected to trend down somewhat as we complete the pivotal Phase III trials, although the ramp-up of commercialization activity will largely affected this.

Moreover with the reduction in clinical activity we do expect to reduce accrued liabilities and accordingly we expect to burn approximately 20 million in the second half of the year, leaving us with 16 to 18 million of cash at year end. Subsequently, even with the additional spending for commercialization activity we now anticipate that existing capital can fund operations into the third quarter of 2010.

We are obviously pleased by the result of our efforts to strengthen our balance sheet year-to-date and will continue to be highly judicious in our use of funds going forward, aiming to contain costs where we continue to position the company for long-term growth and greater shareholder value. Simon?

Simon Pedder

Thanks Nick. Turning now to some of our operational highlights from the quarter; I'd like to start with the progress in our antifolate program.

As you know, early in the quarter we reported finding from our Phase I single and multiple ascending dose evaluations of CH-4051, the L-isomer of CH-1504. Following up on the proof of concept there from our Phase II study of CH-1504, we were particularly eager to see how CH-4051, which by all preclinical measures have demonstrated superior efficacy and tolerability would fare in its first clinical trial in humans.

The results of course were a resounding success reaching 20 milligrams in the multiple ascending dose study. In this study, dosages up to and including 7.5 milligrams were both safe and very well tolerated. At the higher dosages, we saw a clear demonstration of antifolate activity with the expected GI side effects and reversible liver enzyme elevations.

While certainly exciting by its own measure considering these findings in conjunction with the comparable efficacy and improved tolerability of the 0.25 to 1 milligram dose range of CH-15O4 compared to weekly methotrexate in our Phase II study, provides evidence for great potential and exciting opportunity for CH-4051 as in oral DMR in rheumatoid arthritis and other autoimmune indications.

Well, we have the opportunity to present CH-4051 data at EULAR this year. And we were highly encouraged, not only the results to our data but the broad discussions about the future rheumatoid arthritis human paradigm, that characterized this meeting. Increasingly as therapeutic options improve the emphasis in RA treatment is shifting to diagnosing patients earlier before the conditions becomes chronic and irreversible joint damage steps in. And identify patients who would benefit from the disease modifying anti rheumatic drugs early in this disease progress.

This is certainly positive news for us and we already believe it is a pretty sweet spot for antifolates putting our prudent, well tolerated early available DMR such as CH-4051 at the forefront of drug kinesis that's under development, potentially capable of meeting this need and providing meaningful first-line therapy in advance of more cost inclusion or injectible biologic therapies. And also potentiating serving as been important adjunct therapies for patients that ultimately progressed to these biologics.

As planned and in response to the favorable data generated to-date by our antifolate program, we've been engaged in potential partnership discussions for this platform. As we feel strongly that the late stage trials and commercialization of these compounds would benefits substantially from a partner with an established autoimmune franchise with significant modeling capabilities.

These discussions have continued to advance with a number of companies working through their due diligence on our core portfolio of antifolates. In parallel with these discussions, we will continue to move the program forward both in the manufacturing of drug substances and in the collaboration with our advisory board on possible Phase II trial designs for CH-4051.

By continuing with these efforts we are hoping to keep up momentum in this program by facilitating a timely transition into Phase II studies following our potential partnership or if back any point we begin to believe it will significantly enhance the value of this portfolio to do so ourselves.

Of course, EULAR wasn't the only presentation of our data in the second quarter. So I'd like to now turn to a discussion of our Droxidopa program. As we also have the opportunity to present the findings from our Phase II trial in intradialytic hypotension at the World Congress of Nephrology in Milan.

Data from this trial was very well received in this late breaking clinical session. As the symptomatic benefit demonstrated by Droxidopa in these trial attracted a lot of attention particularly as we have previously noted the finding that Droxidopa treatment significantly reduces the number of early terminations of dire progressions that results from hypotension. Given the robust results and the compelling interest we continue to evaluate the best course of action to move this indication forward as we consider the best possible trial designs as well as broader life cycle strategy for Droxidopa, including potential new formulations.

As we think about our next clinical steps with Droxidopa in intradialytic hypotension we are now at the point of taking out the final clinical steps for Droxidopa in neurogenic orthostatic hypotension. We made substantial progress in this program during the second quarter, and in turn have generated significant groups of interest across the Board from investors to potential European partners to physicians and patients.

In May, we reported updated data from the open label Titration Phase of these studies that continue to demonstrate a greater than four unit improvement from baseline on the OHSA base scale. Not only is this average improvement in both studies significantly greater in magnitude than the blinded study is powered to show, we have found the significant number of patients are becoming completely non-symptomatic, a finding that has everyone here excited.

In late June, we completed enrollments in Study 302 which counter to what the name suggests actually got underway in more than six months before Study 301. In keeping with the titration and the randomization schedule for Study 302 we are expecting our last patient, last visit for this trail to occur in the next couple of weeks.

Allowing for the anticipated data monitoring, cleaning, data lock and analysis associated with reporting results from the pivotal program, we are anticipating and very much looking forward to reporting top line results from Study 302 in late September. By this time we also expected to have the full enrollment in Study 301.

In addition to the top line data in September, all data from Study 302 is also scheduled to be presented by Dr. Horacio Kaufmann from NYU at the American Autonomic Society Annual Meeting being held at November 11 to 14 this year in St. Thomas, US Virgin Islands.

The excitement around the conclusion of both Phase III and NOH studies is growing by the day. Based on the open label data that we've seen to-date, we are highly confident in a favorable outcome in both studies.

While, we are waiting the data of from these studies, we have already begun to turn our attention in earnest to initiating our NDA filing next quarter and beginning some of the key marketing initiatives critical to driving a successful launch and maximizing future sales in this indication.

Included in these initiatives will be additional market research to assist in the final sales force sizing and pricing decisions, eventual hiring of the medico science people to facilitate relationships with top leaders and high prescribers in our target specialties. And build awareness of NOH, particularly in the Parkinson arena prior to the launch of Droxidopa.

Supporting these initiatives will be an aggressive publication and presentation strategy to ensure significant visibility of Droxidopa and the Phase III data.

Collectively, these initiatives are designed to ensure a maximum awareness in the scientific and medical communities as well as among potential patients and their efficacy and care giver groups prior to launch availability in the market.

As I mentioned at the start of the call, the first six months of 2009 have been both productive and highly rewarding. As we look ahead over the next few months, we see those have just been the tip of the iceberg. We are now pleased to report data from two highly anticipated pivotal Phase III trials for which all indicators are suggesting a highly favorable outcome. We will also initiate our rolling NDA filing before the end of the year and we look forward to getting some of our initial commercial infrastructure in place.

With that said and at this point I'll turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we'll begin with Juan Sanchez with Ladenburg.

Juan Sanchez - Ladenburg Thalmann & Co

Good morning guys.

Simon Pedder

Good morning.

Juan Sanchez - Ladenburg Thalmann & Co

The first question is about the rolling NDA, I mean what's going to come first, what is going to come second and what is going to come last. How long do you think the rolling NDA is going to take? And when it comes to the safety data base can you'll be a little more specific in terms of where these patients are coming from?

J. Nick Riehle

We plan to initiate the filing with the pre-clinical module, that would be followed by the CMC modules and the last piece to file with the clinical section. We expect the entire process to take early order of three to four months. With regards to the safety database it is a composite of patients who are currently enrolled and enrolling into the long-term studies 302 and 304, as well as extensive safety data with that we have from the Phase II program run by Dainippon Sumitomo in Europe as well as their post marketing safety surveillance studies conducted in Japan, post to launch of Droxidopa in the late 1980s. To Dainippon it is a substantial database.

Juan Sanchez - Ladenburg Thalmann & Co

And do you want to give some update about the situation in Europe. I mean what will be the next steps to take to understand what you could do in Europe?

J. Nick Riehle

Our next plan is to file as soon as we complete the NDA. We believe that the data we have generated in our development program is suitable for approval in the European Union as well as in the U.S.

Simon Pedder

With that I would add the sensitivities we received from our discussion with the EMEA working group were about having additional long term safety data. In the package that we originally sent to the EMEA, it did not include the long-term extension of the European Phase II whereby patients who were actually followed up to three years nor did they include the expense of post marketing surveillance program from Japan that actually followed about 16,000 Parkinson patients were up to 6 years but also about 400 patients with Shy-Drager and associated diseases for a period up to ten years.

So we're very hopeful with the robustness of our Phase III program from an efficacy and with a long term safety that are mentioned. We have in totality in our safety base that we'll have an acceptable filing package with EMEA.

Juan Sanchez - Ladenburg Thalmann & Co

All right. Thank you very much and congratulation.

Simon Pedder

Thanks.

Operator

And we'll take our next question comes from Liana Moussatos with Wedbush.

Liana Moussatos - Wedbush Morgan Securities Inc.

Thank you for taking my question. Can you talk a little bit more about your plans for partnering Droxidopa, are you still planning to take it yourself in the U.S. or is that still open for discussion, maybe a 50-50. Could you mention plans to spend for commercialization preparation?

Simon Pedder

Yeah. We've always said Liana that we would have a partner for outside the U.S. So the EU and the rest of the world and of course during the course of those discussions, a lot of possible partners like to try to sweeten the pot by asking about their involvement in the U.S. market. Those are ongoing discussions, certainly nothing has been finalized yet. We clearly do plan to license this out in the EU and the rest of world. We take it that in due course we will have an announcement to make about that. Whether or not there would be any involvement in the U.S. is still an open question. That said we're trying to send a very strong message here by the raising of money that we are getting geared up for commercial capabilities here in the U.S.

Liana Moussatos - Wedbush Morgan Securities Inc.

Thank you very much. And do you think you could have the partnership announcement by year-end or is it too early to tell?

Simon Pedder

Well, we have a lot of interested parties and I wouldn't want to cheat myself or the company by saying, putting a timeline. Because I think that regardless of how many people we have at the table now, I wouldn't be surprised that once we announce what we expect to be very robust Phase III data that a couple of other interested parties might come out the woodwork. And we want to make sure that we have the time to do but that's deal for Chelsea and for the Chelsea shareholders.

So, in due course, we're just going have to wait and see. I think there is a likelihood that will be out by the year-end, but not necessarily so.

Liana Moussatos - Wedbush Morgan Securities Inc.

And do you anticipate starting the Phase II for antifolate program with the 4051 before year end?

J. Nick Riehle

Most likely it will start in the first quarter of next year.

Liana Moussatos - Wedbush Morgan Securities Inc.

All right, thank you very much.

Simon Pedder

Thank you.

Operator

We'll take our next question from Brian Abrahams with Oppenheimer & Company.

Brian Abrahams - Oppenheimer & Company

Hi there. Thanks very much for taking my questions and looking forward to seeing the data soon. Couple of questions on the OHSA scale, clearly the benefits look very interesting in the open label portion of the studies that you reported. Just wondering is there any historical placebo control data using that scale either with Droxidopa or with any other agents. I guess I am just trying to get health sensitive this scale might be to placebo effect.

Simon Pedder

The only data that has been reported was a study with myelogen that was reported at the American Autonomic Society back I think about may 40 years ago. And that's study reported that in a clinical trial, there was a crossover design with Myelogen. The placebo effect saw an improvement of 0.6 unit in the OHSA. So we took that in consideration in the design of our Phase III program.

But I would add that our designer of our Phase III program takes into account the patients who reported a symptomatic benefit but do not have a cut off at least a 10 millimeter of historic blood pressure improvement upon standing as well get excluded and don't get randomized into the trial. So we would think our placebo effect will be significantly less than the 0.6 which did not have an exclusion for patients having both the symptomatic benefit and a blood pressure benefit during a open label titration period.

Brian Abrahams - Oppenheimer & Company

Okay. That's pretty helpful. And then can you discuss, kind of -- what you're as you go through and you're pre-marketing efforts and get a sense of where you might be able to price structure therefore? Can you talk about how differentiated you think having a labeled forced systematic benefits would be versus the generics, and how you see tiering and reimbursement potentially playing out and I will hop back in the queue, thanks.

Simon Pedder

Sure. The easiest statement, as we expect to get a labeling for improvement of symptoms. And we will be the only compound which has been given the label for improvement of symptoms. The black box morning, actually on myelogen not only mentioned to supine hypertension issue but also states clearly that the benefit on blood pressure has not been shown to lead to any improvement in symptoms or activities of day living with this patient. So I think just the fact that we will not have a black box related towards supine hypertension but the fact we will be first compound approved to show symptomatic improvement means that will be lower here.

Operator

Anything further Mr. Abraham?

Brian Abrahams - Oppenheimer & Company

No. That answers that. Thank you very much.

Operator

Thank you. We'll take our next from Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann & Co

Thanks very much. I got the call a little late, -- already talked about, can you talk about the second file that enrollment whether it's on tract for fourth quarter this year, do you have?

Simon Pedder

Yes. The 301 Study is on track. We expect to have that trial finished recruitment by the end of this quarter. It's a two to four week trial and subsequently we would expect to have that data reported in fourth quarter.

Howard Liang - Leerink Swann & Co

Okay, great. Are there I mean how will you thought there need to be a types of collaborative studies which were late in States for audit NDA.

J. Nick Riehle

We are currently conducting a gap analysis in our NDA filling process, it is possible there may be a few small studies that we still need to do. We haven't finalized those yet but nothing that would impact the overall filing as we described.

Simon Pedder

And also we will be having later this year a pre NDA, a meeting with the agencies that we've requested to go and through any possible additional on trials or studies I should say that the FDA would like. I would comment that none of these studies with the long in nature and therefore interfere with our filing timeline.

Howard Liang - Leerink Swann & Co

So you mean the POPB studies?

Simon Pedder

We don't believe so.

Howard Liang - Leerink Swann & Co

Okay. And then last question is regarding the -- sort of we saw effect of the property -- when you discontinue profit over ones do you see 295 going away. Do you have any trends on that?

Simon Pedder

Historically and obviously it depends on the stores capability of the individuals or more they have ability to store the newly produced norepinephrine and the longer that they are going to be able to release norepinephrine even if you stop giving the Droxidopa. But even in the cases of patients that have good storage capability the benefit goes away between 24 and 36 hours after you see skipping the drug.

Howard Liang - Leerink Swann & Co

Thanks very much.

Simon Pedder

Thank you, Howard.

Operator

(Operator Instructions). We'll take our next question from Andrew Vaino with Roth Capital Partners.

Andrew Vaino - Roth Capital Partners

Hey thank you for taking my call. Quick question on the arthritis program, can we assume that at least for now the 1504 is going to be shelved in favor of the 4051?

Simon Pedder

Well we certainly see a lot of the clinical benefits that 4051 has and we recently had a meeting with our group of scientific experts that are involved in the field of rheumatology and autoimmune diseases. And certainly I think everybody agreed that there are some characteristics for 4051 which publicly make it a preferred candidate over 1504. I certainly don't think that means that 1504 is stopping further clinical development. But clearly we would like to characterize the clinical utility of 4051 and see that the preclinical profile that made it preferred candidate even over of course methotrexate and a lot of about preclinical activities.

And yet the very well controlled Phase I program where we got up dosages that quite surprised docs and certainly when we showed our Scientific Advisory Board the pre-clinical data but then showed them the Phase I data and the dosages we were able to get I think there's probably not so much the dissolution with 1504. But there's just tremendous excitement about 4051. And we wanted to see what we have in a well controlled Phase II program.

Andrew Vaino - Roth Capital Partners

Okay, thanks. And any update on Fibromyalgia program for Droxidopa?

Simon Pedder

No the Fibromyalgia study is running well. We've always said that after getting it set up and running in the UK, we'll look at getting it into additional countries. We have had some success in some of our investigator initiated trials to get the combination of the drugs in Droxidopa plus carbidopa combination approved in a clinical program and so it's probably a logical next step that were going to file to get that Fibromyalgia study started in another country including likely at the U.S.

Andrew Vaino - Roth Capital Partners

Okay. Thank you.

Simon Pedder

Thank you, Andy.

Operator

And we have no further questions. I'd like to turn the call back over to Dr. Pedder for any additional and closing remarks.

Simon Pedder, Ph.D.

Well thank you all for participating in today's call. I hope you found it informative and that has given you some appreciation for the excitement that we at Chelsea are feeling, as we approach the results of our first pivotal phase III trial next month. We are confident that we will reach if not exceed the required end points for this study. And believe success in the program combined with the strength of the full development pipeline will continue to drive significant value for Chelsea and all the shareholders. Thank you for your participation and have a great day.

Operator

That does concludes today's call. Thank you once again for your participation.

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